Create account

iPhone 5: Not a Success Story?

With the iPhone 5, Apple has once again claimed new sales records. But the numbers tell a different story. Investors are worried that Apple may be on the decline.

"Incredible Demand!"

Last Friday, the official word from Apple was glowing. The company was claiming that the demand for the iPhone was once again exceeding everyone's wildest expectations.

"Demand for the iPhone 5 is incredible and we are working hard to get an iPhone 5 into the hands of every customer who wants one as quickly as possible," said Tim Cook.

I know this word from last year's launch of the iPhone 4S. And actually the iPhone 3GS , as well. Apple is fond of calling their releases "incredible." And perhaps it is usually warranted: compared to just about every other smartphone out there, the iPhone always sells like hot cakes. But perhaps some healthy skepticism is needed here.

"Only" 5 Million Sold?

Some analysts were very disappointed by the iPhone 5's sales over the first three days after its release. Gene Munster of the investment bank Piper Jaffray said he was actually expecting six to ten million units to be sold.

Initially, I was surprised that any analyst would be disappointed when Apple sold nearly 1 million more units than last year's release of the iPhone 4S.

Now, of course you could say that these analysts just made a mistake, as anaylsts tend to do. At least, this is the popular narrative: the analyst, an idiot in a tailored suit, who probably still owns a Blackberry, is inept at making forecasts.

But these are highly paid professionals who know how to analyze data. It is worthwhile to take a look at Munster's numbers.

First of all, Munster has examined how strong sales have been during the first weekends of iPhone launches in recent years: from the release of the iPhone 3GS to the iPhone 4, we see a growth of 70%. Jumping from the iPhone 4 to the iPhone 4S, the growth was as high as 135%. This is made all the more tangible when we look at the numbers:

iPhone 4: 1.7 million units

iPhone 4S: 4 million units.

So, 2.3 million more people bought the iPhone 4S than the iPhone 4. Assuming the growth stays constant, we'd expect the iPhone 5 to sell 6 - 10 million units, which is actually still a pretty conservative estimate! Viewed from this vantage, the sales numbers of the iPhone 5 so far are quite disappointing. Of course, 5 million sounds like a nice number, but the growth curve seems to have slowed. This graph from Business Insider says it all:

(c) Businessinsider

But there's another factor to consider here; the number of countries in which each version of the iPhone was made available. In 2011, the iPhone 4S was available in 7 countries; this year, the iPhone 5 was available in 9.

New to the exclusive club of global release countries are Singapore and Hong Kong. Now one can expect that these are places where the iPhone would be in hot demand. More countries = more potential buyers = more demand = more purchases. Right?

But even here Apple's results are below expectations, which can be clearly seen when the number of models sold is divided by the number of countries in which the model was offered. We can thus see how many units were sold per country. Again, here's Business Insider's graph:

(c) Businessinsider

So, Apple's growth has actually been negative.

A Growth Limit

But maybe a company like Apple, at a certan point, reaches a natural threshold that cannot be exceeded. After all, the logistical effort required by a company to deliver a device like this at the same time in 9 different countries cannot be overestimated. And as the list of countries grow, so does the logistical nightmare of providing all potential customers with new and shiny phones.

And Apple is highly dependent on its suppliers. The company produces nothing itself, everything is created and screwed together in Southeast Asia, including the 5 million display components, 5 million flash memory chips, 5 million camera lenses, etc. If a single link in the supply chain isn't working perfectly, there are delays.

Then we must also understand the pre-orders, as Forbes recently wrote: the overwhelming pre-orders could be the reason behind the iPhone 5's disappointing sales. Apple's sales figures for the opening weekend include only those units that were sold into partner channels, retail stores and directly to pre-ordering customers. Due to "overwhelming demand" Apple may have managed to ship a limited number of these phones due to supply constraints. Apple doesn't record sales until the customer has received the device.

Disenchanted

Still, we're left with the question: has interest in Apple's iPhone decreased or is the newest model simply a victim of an overwhelmed supply chain? This is a question that will be answered in the coming days, as the iPhone 5's release spreads to 22 more countries and the sales figures will then speak for themselves. But whatever the eventual outcome, investors are at least temporarily disenchanted: Apple's stock fell by 2% on Monday.

10 comments

While the iPhone5 may be the best thing to happen to Apple since the iPad2, there should be a graph reflecting Consumers who would purchase a Smart Phone (Apple, or Android) if their Service Provider would let them opt out of an existing contract and upgrade (in fact? It would be in Apple's best interest to request Service Providers to let this occur & pick up the extra fees as a marketing gimmick that would work) ...

Another graph should be available reflecting "No Contract" Consumers (Apple seems to only want to get ride of its excess of 3G iPhone4 .iPhone4s Smart Phones via "No Contract" - but what if they offered the iPhone5? - wouldn't that expand their earnings? Its happening for HTC and Samsung as they introduce 4G Android Smart Phones into the "No Contract" market) ...

@Doqukan- I think they missed the point actually. Q2 wasn't a victory for Android (Android had already won but the manufacturers were consistently, steadily losing), it was a victory for Samsung. They proved a point: if you offer something greater than Android and provide a premium experience, you can outsell iPhone. It looks like, to this day, Samsung is still the only one to have gotten the point.

New Androids are released constantly and most of them can only brag that they're yet another version of an Android device jumping on the pile of over 4000 other devices. They might as well start laying off employees now, if they haven't already (as some of the them have).

In relative costs, phones aren't expensive and there's not an overwhelming (subsidized) price difference between a new iPhone and the cheapest models you can find. That's a bonus for Apple and keeps the playing field level. They'll screw up more now that Jobs is gone but, in very real terms, Android will too, by it's very nature. That customer who was broke and took the first cheap Android he could find isn't likely to come away from the experience singing Android's praises. When he saves up the money for a good phone next time, he'll have the choice of an iPhone or a premium Android..... and iPhone will have the edge since Android already let him down once. I wouldn't put too much stock in the supposed failure of 5 million sales. The point (again, after my rambling) is if you really want to outshine an iPhone, you need more than Android. Samsung has figured that out. We'll have to wait and see if the others have.

Yeah but the S3 was a first for Android to dethrone the iPhone. Of course people were going to brag about it. And I dont think it was just fanboys bragging, talking non sense etc. They were talking to prove a point, that the iPhone is really going down slowly, but surely.

Lets not forget a couple things here, 5 million might not be including the already announced per orders, the oders for devices that haven't yet been shipped out because right now the wait time alone to buy one is 3-4 weeks, and for the demand not to be that high it sure seems like a long waiting period.... Lets not also forget there was limited supply due to the fact there screen is so thin it's taking them a while to get them produced faster.. So did it sell 10 million idk they sold 5 million over the weekend and a couple million of pre orders, and probably didn't include orders that haven't shipped yet... So I would say they prolly got pretty darn close..

Contract upgrade eligibility needs to be factored in as well. In the states at least, early upgrades have been severely restricted and, for the most part, taken away. The 4S was a sales monster.... one year ago. Now most of those customers are ineligible for a subsidized upgrade this time. AT&T is allowing me an early upgrade.... one month early. Times have changed and Tim Cook's enthusiasm is understandable. If I sold 5 million of anything over a weekend I'd be shouting it to anyone who would listen.